Grupo Rotoplas SAB de CV

BMV:AGUA

Earnings Call Transcript 2020-Q2

[Operator]

Good morning, and welcome to Grupo Rotoplas' Second Quarter 2020 Results Conference Call. Please note that today's call is being recorded. [Operator Instructions]

Today's discussion contains forward-looking statements. These statements are based on the environment as we currently see it and as such, there may be certain risk and uncertainty associated with such statements. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, further events or otherwise.

Please allow me to remind you that the company issued its earnings press release yesterday after market close. It can be found in the Investors section of its website. Also, the presentation for the call and the webcast link are in the Investors section.

Today's call will be hosted by Mr. Carlos Rojas Aboumrad, Chief Executive Officer; and Mario Romero, Chief Financial Officer.

I will now turn the call over to Mr. Carlos Rojas.

[Carlos Rojas Mota Velasco, executive]

Thank you. Good morning. Thank you for being with us today. I hope you and your loved ones are safe as we continue to chart our way out of the current crisis and into the future recovery.

It is clear that COVID-19 pandemic has become major catalysts for change in our societies. The pandemic has brought about profound health and economic challenges across the globe and the response to them is still evolving. However, these challenges have reassured us of our purpose and we're thankful for the opportunity to continue serving and helping others.

Throughout this crisis, we have focused on the well-being of our team members and our communities as well as on providing support to our suppliers, distributors and the technicians that sell and install our products. Not only do we continue to provide much-needed water solutions to our clients, but we are doing so while protecting the health and safety of our people by strictly adhering to all local regulations and the World Health Organization guidelines. And as we head into the new normal, we are working towards defining the protocols and workplace practices that will best enable us to ensure that our people stay healthy and safe in the later stages of the pandemic and into the future.

We have also donated water purification solutions to hospitals that can purify over 3 million liters of water yearly, storage solutions that can store over 1 million liters in vulnerable communities. And we have installed over 1,000 handwashing stations in key locations across countries we operate in. In fact, we have made available the prototypes and operating manuals of these handwashing stations so that any interested party anywhere in the world can replicate the effort and help fight the spread of the virus and overall public hygiene.

In the same vein, we used our plumber loyalty program, which now has over 7,800 members, to reach out to them and learn how we could best support them to get through the effects of the lockdown. As a result, we have provided them with new training opportunities, new communication channels and material and logistical support where -- when needed.

Our company's commitment to providing more and better water to our customers and our communities is now more relevant than ever. As it is our -- as is our responsibility to promote sustainable development and protect the environment, effectively increasing our stakeholders' resilience when facing a crisis such as the current one, our societies are learning, changing and adapting. And Rotoplas is embracing this transformation as it is particularly aligned with our company's mission.

It is important to remember that, as I mentioned in our last call, Rotoplas is not the same company as it used to be. Through our efforts and strengthening and streamlining key aspects of our business, we continue on the path of creating value for our shareholders and we remain on the track even through these uncertain times. We have a resilient and diversified portfolio of goods and services as well as effective strategies across our markets. We are constantly vigilant of our operation and always exploring new opportunities. And as our quarterly results show, our efforts are paying off.

I would like to highlight, for example, that our e-commerce platform in the United States reached successive record sales in April, May and June as we managed to address the changes in habits of our customers as well as the growing demand for agro-industrial water solutions in the market.

We are also transforming our business in Brazil. We are -- where we divested our underperforming assets and are now focused on developing the service platform through water treatment plants, which represent an extraordinary opportunity which will allow us to take full advantage of our presence in one of Latin America's largest economies. At the same time, we have managed to weather the effects of lockdowns and operating disruptions in some of our Central and South American markets.

Furthermore, considering our performance as lockdown restrictions were eased in some of those markets in June, we now see a very encouraging run rates in countries such as Peru and Argentina, Honduras and Curacao as well, evidencing that the strength of our brand and the quality of our solutions are the -- are at the top of our customer minds in the new customer landscape.

Even as growth in sales in Mexico remains strong and sales of our storage solutions prove their resilience, we are seeing a rising demand for our bebbia platform that underscores its potential to become a leading purified water solution for the country. In fact, the success of both bebbia and our e-commerce platforms highlight the need to constantly innovate and address new customer needs and habits. We believe that loyalty with our team members, distributors and the people who recommend and install our products is a 2-way street. We look after them, and they look after us. We -- and we extend that vision to our customers and communities as we believe that solidarity is and will be, in the times ahead -- will begin in the times ahead.

We are grateful for the opportunity to leverage our innovation and client-driven ethos and to help address what has proven to be one of our most urgent challenges of our time. And as our societies chart the new way forward, we are confident we will continue to play a key role both in containing and mitigating the effects of the pandemic and building the road to recovery.

Thank you for your time and attention. I will now turn over the call to Mario so that he can go over the quarterly results in more detail. I look forward to your questions.

[Mario Antonio Romero Orozco, executive]

Thank you, Charlie. Good morning, everybody. Thank you again for joining us. I hope you have been safe and healthy these past few months.

As Charlie pointed out, and as we mentioned in our last call, Rotoplas entered this phase of the pandemic strengthened and with a clear purpose and objectives. Even as there is still a certain level of uncertainty about the future evolution of the crisis and its full impact, we are confident that our quarterly results evidence our resilience in the face of systemic shocks, and more importantly, our ability to continue to serve our customers at a time when the availability and quality of water is crucial.

In fact, as mentioned, even in those markets where we experienced disruptions due to local pandemic restrictions, we are already seeing very positive signs as those restrictions are lifted. Whereas in other markets such as the United States, Central America and Mexico, we experienced significant growth throughout the period as consumer habits are changing.

Residential water consumption has increased as families are spending more time at home. And also industries and business are preparing for the new normal, in which it is estimated that more water is going to be needed to fulfill health protocols.

Providing more and better water is, therefore, not only our reason for being, but it is also a sound business vision. In fact, in spite of the widespread economic shock associated with the pandemic, net sales grew 1% year-over-year during the quarter and 2% during the first semester. Likewise, sales of our water-as-a-service platform grew 22% during the last quarter, driven by double-digit growth in treatment plants, bebbia and drinking water fountains. Moreover, we remain focused on our employees and clients' health, safety and well-being while creating value for our shareholders.

To that end, we have maintained a watchful eye on our cash through our Cash Flow Control Tower and have continued to strengthen our balance sheet, which closed the quarter with a 0.6x leverage. Most importantly, we have reached a return on invested capital of 8.8%, an increase of 90 basis points year-over-year.

As we make progress in our transformation process flow, implementing new initiatives and streamlining our operations, we continue to advance towards our goal of having a weighted average cost of capital below our ROIC by year-end. The ROIC shows a decrease compared to the immediate previous quarters due to the impact on the generation of operating income from the closure of operations because of the pandemic. The recognition of expenses for implementation of flow and the readjustment of workspaces to comply with health guidance. Without the impact of the disruption or closing of operations in Peru, Argentina, El Salvador and Honduras, the ROIC will stand up at 9.6%.

Now please me allow to discuss some of our quarterly results in further detail. As for Mexico, our sales grew 3% during the second quarter and 7% during the first semester due to a solid and resilient demand for our storage solutions and to the prioritization of access to water for hygiene and workplace safety. In fact, as Charlie already highlighted, bebbia, our drinking water service, experienced record sales throughout the quarter, proving its value and potential in the changed landscape. As of June, we doubled bebbia's installed units, reaching more than 31,000 purifiers and more than doubling the 14,000 installed units as of June of last year.

We also continue to innovate within Flow's framework, introducing new storage products and strengthening our marketing efforts, including, of course, our plumber loyalty program, but also our sales team's productivity. It is worth noting that while we registered significant growth in the sales of water fountains, government sales as a percentage of total revenue remained well under our 10% target, amounting to 2.8% during the second quarter. We are also seeing very little correlation between our sales and the construction industry trends, which are both signs of the success of the diversification that anchors our resilience.

Furthermore, as we have already mentioned, our e-commerce platform in the United States has had 3 consecutive record-breaking months, evidencing that it is the perfect channel to reach and serve our customers in the new normal in that country. Sales in Central America also increased by double digits. In spite of the lockdown measures and the disruptions to our operations, thanks to the optimization of our sales force productivity and the incorporation of new products to our portfolio in the region.

This growth compensated to losses sustained in Peru and Argentina, El Salvador and Honduras, which amounted to MXN 275 million as we face restrictions that severely impacted our operations in those countries, as I will explain next.

Net sales in Argentina totaled MXN 322 million for the quarter, but we estimate that the disruptions to our operations, which were limited or stopped for 33 days in the semester, reduced our sales by MXN 125 million. However, as Charlie pointed out, we are seeing a really positive run rate in June as restrictions have been eased, with sales growing double-digit in local currency and exports increasing 81%.

Sales in Peru decreased significantly due to the lockdown measures implemented in the country, which closed down our operations for 81 days, negatively affecting sales by an estimated MXN 139 million. However, following the reopening in June, we are already seeing a solid recovery trend, increasing sales double-digit across all business lines.

The intermittent closures of our distribution centers in Honduras and El Salvador had an estimated negative impact on sales of MXN 11 million for the quarter. Our operations in Guatemala, Costa Rica and Nicaragua continued throughout the quarter without interruption.

And finally, the divestment of our product unit in Brazil on May 1 netted us MXN 134 million and will significantly contribute to our ROIC while enabling us to strengthen the presence of our water-as-a-service platform in that key market through our treatment and recycling plants.

In terms of our portfolio mix, sales of products during the quarter accounted for 92% of total sales, testing to the growing strength of our water-as-a-service platform and we entered the new social and economic landscape brought about by the pandemic.

Regarding our P&L results, it is worth pointing out that our quarterly operating profit totaled MXN 178 million and MXN 456 million in the first semester. These results are 32% and 17% lower than those of 2019 due to the operating restrictions I discussed before, with reduced cost and expense absorption. We estimate that the impact of these restrictions in Argentina, Central America and Peru amounted to MXN 67 million during the second quarter and MXN 79 million during the first semester.

We also had to undertake additional expenses to recondition our plants and offices in order to fully implement the relevant workplace safety protocols, which amounted to MXN 7 million. Additionally, we made onetime expenses totaling MXN 21 million related to the implementation of Flow, and we invested heavily in advertising campaigns to promote bebbia.

Our quarterly adjusted EBITDA totaled MXN 294 million, 13% reduction year-over-year due to the operating restrictions that I have already discussed, which affected the result by an estimated MXN 83 million.

Finally, we reused our quarterly net loss of MXN 59 million before accounting for discontinued operations. This is a result of the decrease in our operating profits due to the lockdown disruptions as well as FX losses on our dollar-denominated positions and accounts receivable in local currency, totaling MXN 99 million for this effect. We also faced higher insurance expenses and a negative effect of MXN 16 million for our monetary position in Argentina. However, net income still increased 87% in the first semester. Furthermore, the gains in derivatives and FX positions in the first quarter compensated for the FX losses in the second quarter.

In regard to the strength of our balance sheet, as I have already mentioned, our net debt-to-EBITDA ratio is 0.6x, well below our 2x ratio policy. During the quarter, we took a MXN 65 million or PEN 10 million loan from the government in Peru, which is meant to help alleviate the pressure caused by the total lockdown. The loan has a 12-month grace period. It deals 1.46% annual interest rate and it is under a 3-year tenor. Apart from that loan, our debt position also considers a sustainable bond, AGUA 17-2X, which, as we discussed in our last call, net MXN 4 billion, has a maturity date of June 16, 2027, and was issued at an 8.67% fixed rate in Mexican pesos.

It is important to note as well that we have decreased the cash conversion cycle by 16 days, driven by an improvement in accounts receivable and a decrease in inventories. This is a direct result of the negotiation of better terms with clients, an initiative that originated within the Flow program and is closely monitored by the weekly Cash Flow Control Tower.

CapEx remains at 7% of total sales, which we believe to be a very sustainable level. 33% of that CapEx is allocated to water treatment plants in Mexico and now in Brazil as we redefine our value proposition in that country.

Charlie has already gone through the most important actions we have undertaken in the ESG space. I would also like to add that some of you may know, Rotoplas has been included in the S&P/BMV Total Mexico ESG Index, which substitute the S&P/BMV IPC Sustainable Index. The index includes the 29 issuers and REITs with the best ESG performance and attest to our commitment to ensure that we are there to the highest standards in bringing more and better water to our customers and communities.

We are also very proud to share with you the ESG KPI dashboard, which is available on our website and details our most relevant environmental, social and government results since 2016. The dashboard and our new sustainability management system platform will strengthen our efforts to measure and improve our ESG performance as well as our commitment to transparency and accountability in this matter.

In conclusion, I'm sharing this Economist cartoon by Kevin Kallaugher. It describes -- and as we discussed in our last call, we expect that the pandemic will have an impact across all of our major markets. However, we also expected that our strong balance sheet and the flexibility that affords us will allow us to continue serving our clients and to strengthen our water-as-a-service platform, all the while ensuring the well-being of our people.

As Charlie pointed before, we are now beginning to realize the scope of the social and economic changes brought about by the crisis. And even as we are still dealing with its dire effects, we are already thinking about the way forward as well. Our business model has proven resiliency. We have managed to reach out and support our stakeholders during these challenging times while continuing to advance towards our value-creation goals. We will continue ahead in this path, relying on our capacity for innovation and our adaptability, and we will continue to keep you informed of any relevant events as we have been doing to date.

We are confident that our societies adjusted to new realities in front of us. Our company will play a key and increased role in helping our customers address their water needs.

Thank you for your time. Now we will move to any answer, follow with questions you may have.

[Mariana Fernandez, executive]

The chat is open for questions. Just pressing the Q&A sign, please.

We have the question -- the first question from [ David Seaman ]. Can you please share earnings per customer behavior in bebbia given your survey result of 40% of consumers being open to filters. Is that a worrying statistic?

[Carlos Rojas Mota Velasco, executive]

It's actually positive that people in Mexico, where we are currently offering bebbia, are willing to move from bottled water to purified water. The reason we came up with the bebbia as water-as-a-service or purification -- purified water-as-a-service was that there were lots of pain points in the customer journey for purchasing, installing and servicing a water filter at home. So we decided to do that same model where we are responsible from end-to-end service. And so we're actually seeing tremendous growth in interest for bebbia. It is still very new. There's still a lot of work to do in terms of brand awareness and service awareness. What we're seeing great opportunity to increase investment in marketing efforts to continue to grow new subscribers per month. And that has -- just to give you an idea, June growth of new subscribers per month grew around 200% as compared to June of last year, which is going very well. Thank you, David.

[Mariana Fernandez, executive]

We have another question from Regina Carrillo. Is there any guidance you can give us for the second half?

[Mario Antonio Romero Orozco, executive]

Regina, thanks for joining. At this point, we are not giving any guidance given such a volatile environment that we are experiencing. As explained during the call and in the press release, the good news is that the company is having a strong demand for most of their products and services. The things that we cannot control are like the lockdowns like the ones we saw in Argentina and Peru and parts of Central America, which as explained, it really affects our profitability levels. Because as a company, we have decided to keep the whole team, employees and staff in place. So having said that, and as mentioned during the call, in June, we saw a very impressive month. Just to give you an idea of magnitude, sales were 50% higher than in April where all the countries were open. And if the second half is to remain the same as June where all the countries are open, then we'll have a better second half than the first half. But again, there are too many variables out there moving day by day. We are doing our best efforts to work them out. Our strong cash position, the good demand that our products and services is showing in such an environment proves that we have a very resilient portfolio. So if things play well, you might see a better second half than the first half.

[Mariana Fernandez, executive]

The next question is from [ Rodrigo Salazar ]. I have actually 3 questions. I will start with the first one. Could you elaborate more on the MXN 20 million expense on Flow? What impact did you saw in Mexico products due to a pandemic and if that's why we saw a more pressured margin?

[Carlos Rojas Mota Velasco, executive]

Did you want to finish with the questions, Mariana?

[Mariana Fernandez, executive]

Sure. And also, if you could explain a bit more on the U.S. dynamics, how are you seeing it behaving in the coming quarters? And if you are planning on reporting separately on the future?

[Carlos Rojas Mota Velasco, executive]

Rodrigo, I'll answer first part of your questions, and then Mario will complement. The MXN 20 million expense on Flow, I'll allow for Mario to explain in further detail on how we're registering this. In terms of Mexico, most of our solutions are much more related to water needs, and those performed very strongly. There's a few products such as piping, which were affected in part by the construction industry in Mexico. The construction industry in Mexico had an important reduction during the first semester, and so that did pressure margins partially in Mexico. Also, part of our solutions service places of work, such as offices, where we did see also a reduction in demand as a consequence of people staying at home and not going to the office to work. In terms of the U.S., we do see that there's great opportunity to continue to transform the traditional purchase on habits from people going to a physical store to purchasing more online. So we do see great possibilities to continue to transform the business model from purchases at physical stores to doing more remotely, where we are the leaders in terms of e-commerce for this line of products in the U.S. Today, it is not large enough for us to report separately, but we do hope that it will be the case in the future. Mario, would you like to answer the MXN 20 million allocation for the...

[Mario Antonio Romero Orozco, executive]

Sure, Charlie. Thanks, Rodrigo, for joining us in the call today. Just to complement on the U.S., a couple of things. U.S. was close to be the second largest market of Rotoplas in the second quarter. And probably, it's going to be the next year's case that we will need to report the U.S. because of the magnitude and IFRS compliance. As for the Flow expense, what -- as you all know or most of you know, the company is running a transformation program named Flow. We have studied 14 different companies that have run similar programs in the past, all of them public companies. And 75% of those companies have presented these one-timers every quarter to give transparency and make it a comparable base to investors and analysts. We will be presenting in the coming quarters the same information of the Flow program. And these one-timers are mostly one-offs that the company is deciding to do or consultancy fees, which are paid because of the program.

I will probably go with Alain Jaimes' question -- and thanks for joining us. We actually paid a dividend on May of MXN 0.80 per share. So for the remainder of the year, there is no plans for additional dividends. So that answers to your question.

[Carlos Rojas Mota Velasco, executive]

Mariana, would you like to read Liliana's question, please?

[Mariana Fernandez, executive]

Yes. Could you please give us more color behind EBITDA and services. With that 20% growth in sales, it seems that it was not enough to improve profitability. Is there something particular this quarter or maybe the mix or bebbia-related expenses that have affected EBITDA growth?

[Carlos Rojas Mota Velasco, executive]

I will allow for Mario to respond in a little bit more technical terms, but I would mention that bebbia and Sytesa require quite a bit of investment to generate growth. Bebbia, the way it grew since we take the entire customer acquisition cost and the cost of the product and installation as a cost in period 0 when we install a new customer, and it takes a little bit of time to get a return on that investment. The quicker we grow, the higher the impact -- negative impact on the EBITDA. So it's a little bit counterintuitive, but it's actually a reflection of this negative impact in EBITDA. It's a reflection of the positive trend on bebbia's growth. In terms of unit economics, we're not disclosing the details, but I can tell you that it offers a positive return and weigh over our weighted average cost of capital. So we're very happy to be growing this business unit as aggressively as possible.

[Mariana Fernandez, executive]

[ Santiago de León ] is asking, could you give us more color on your services segment?

[Carlos Rojas Mota Velasco, executive]

Mariana, pause just a second. I don't know whether Mario wanted to complement something.

[Mario Antonio Romero Orozco, executive]

I was just complementing Charlie's answer. As Charlie mentioned, we are -- we believe it is a time to think and go big after bebbia, so we're making a lot of commercial and marketing efforts to push that business. Second, as we mentioned, we divest the products division in Brazil, but we kept a team in Brazil which is building the Sytesa business. That business in Brazil is burning cash today because they are building the water treatment plants as we speak. So both of those are dragging on Sytesa Mexico's EBITDA. So that is why profitability in services is not there. But as our CEO mentioned, we're very confident on the IRR returns on a unit economic basis. And these are bold moves of the company's future and investment and expenses are being allocated to that.

[Mariana Fernandez, executive]

Santiago De Leon is asking, could you give us more color on your service segment? What do you expect going forward? And do you expect the EBITDA margin will be after the pandemic? Regarding development of water treatment plants, could you give us an update on that? How many plants do you expect to have at the end of the year?

[Carlos Rojas Mota Velasco, executive]

Again, I'll answer in general terms, and Mario will complement with the details. But in terms of wastewater treatment plants for Mexico, we have seen a slowdown on investments in industrial projects or large construction projects, which impact the demand for new plants. It's not that it has been reducing definitely, but some projects are taking longer to materialize. So our time from prospect to execution is taking a little bit longer. It will -- in terms of projected margins, where we can take into account the investments we do to grow these services. In a longer period of time, they will continue to get stronger as we get higher levels of revenues. Mario, would you like to comment in more detail in terms of numbers?

[Mario Antonio Romero Orozco, executive]

Sure. Thanks, Santiago, for joining us and for your good questions. Before COVID and with the transformation program we have spoken about in place, we were aiming to reach EBITDA margins in the neighborhood of 20% on the year. As you know, all this pandemic changed everything and our different business segments have been affected and countries as well. So the target is still there. Once we are over this health crisis, we believe that the normalcy of growth and margins should be there as well as ROIC.

[Carlos Rojas Mota Velasco, executive]

Just something additional to wastewater treatment plants. We are seeing a very strong demand in Brazil. There seems to be more interest in investments in Brazil today, which is very exciting for us to be participating in.

[Mario Antonio Romero Orozco, executive]

Then, if I may, to Rodrigo's question...

[Carlos Rojas Mota Velasco, executive]

So just a quick thing regarding that. It's related to the projection, to the guidelines for the second half of the year. There's tremendous uncertainty. If it's not for that uncertainty, we could say that we would be getting very close to that ROIC being equal to WACC, which we mentioned at the beginning of the year as a target. But there's lots of variables that are in play today. So in normalized terms, we would be very confident that we will be getting there. The plan that we have today is very -- it continues to be a relevant plan, considering how the world is shifting, how the world is evolving with the pandemic. So we're very happy to have a very strong detailed plan with very detailed initiatives. Each initiative having owners, every initiative having milestones with milestone owners. All of these milestones and initiatives with very clear due dates. And we're making very good progress with this transformation of Flow, which is the main driver to get us to have a ROIC above WACC. It's just a matter of when it will be reflected. If it is a case that one of the unforeseen variables impacts this in a short term. Mario, anything that you'd like to complement?

[Mario Antonio Romero Orozco, executive]

Yes. And to that, we have different -- we have 3 scenarios going on inside the company. Good news is that independent of any of the 3 scenarios that we are running as of today, none of them take us out from our medium- and long-term strategy. The company is very well funded. Debt maturity, it's until 2027. The growth path is clear. So probably 2020 will be kind of a bridge year, but minimum long-term strategy is intact, and we feel confident on that.

[Carlos Rojas Mota Velasco, executive]

So if there's any other questions, we'll give a few seconds. Thank you very much, Mariana. Will you help us for the final comments.

[Mariana Fernandez, executive]

Thank you very much, everybody. We hope you will join us again next quarter. Until then, we'll be sure to keep you updated of any relevant news as they happen.

[Mario Antonio Romero Orozco, executive]

There is one more question, Mariana, from David. If you want to read, just before...

[Mariana Fernandez, executive]

Yes. Thank you, David. A few cash flow questions. Is there a mix effect that explains the source of working capital gains? What prospects are there for gains in inventory? You made investments in Sytesa, yet capital -- CapEx is lower year-on-year. Are you deferring maintenance spend?

[Carlos Rojas Mota Velasco, executive]

Mario, would you like to comment?

[Mario Antonio Romero Orozco, executive]

Yes. Thanks, David. Well, I'll go from Sytesa, what -- part of the transformation, we are being more thoughtful on maintenance CapEx. We are managing that on a weekly basis. We are asking people to present business cases. And this is part of the transformation that we are running. What has happened is that we've been more -- we're getting better at making maintenance CapEx decision. And that is -- and you can see the CapEx trend sequentially, how that is moving. And that is good, and that is explained by Flow.

On the working capital gains, is there a mix effect that explains that? Well, one is that, we are working closely with our clients and accounts receivables are getting lower. Inventory, it's a little bit tricky because of all this volatility that we are experiencing in 14 different countries. We do have a very interesting initiative going on as part of the transformation to do better inventory management. So some gains will be obtained from this, but I think those will be really bankable once the situation gets more normal. Because, as mentioned on one of the previous questions from Regina, just like look in April and June, and a different sales of 50%, imagine the adaptability that the supply chain needs to handle with such swings. So once we get into a more normalized level, I think those gains in inventory will be reached.

[Mariana Fernandez, executive]

There's another question from José Cebeira. Hello, Charlie and Mario. Congrats on the results. And I have one quick question. We have seen a fast reduction in the mobility restriction across LatAm. This makes you believe that the third quarter report could be -- could have a lower recovery than we have seen during the end of the second quarter.

[Carlos Rojas Mota Velasco, executive]

Pepe, thanks for your question. Not necessarily. The biggest restriction was when we couldn't operate at all. This was the case for a few countries in Central America, for Peru, for Argentina, for periods of time. It will benefit the business if construction picks up a little bit on -- again, the products haven't shown to be as strongly correlated to construction, just a few of them. But in terms of water solutions, people are actually finding that if they need a water solution, they won't wait. They want it now. And Rotoplas has figured out ways by being very agile, very flexible to service those needs. And what we do see is that people will continue to be very conscious about their availability of water and the quality of that water, and they will continue to transform their habits and their demand for our products. So that will continue to be a trend. But Rotoplas has been very, very agile in adapting to whatever the new normal is. And we've already seen a very strong June. I think we can continue to see months similar to June with the increase or the development of the business as a consequence of the evolution that we're having through the transformation of Flow. Anything that you'd like to add, additional to that, Mario?

[Mario Antonio Romero Orozco, executive]

I think you got it right. If there are not massive lockdowns like the one suffered in Q2, we might see a good Q3. Because demand there, water needs are there. But again, that, Charlie, we don't know.

[Carlos Rojas Mota Velasco, executive]

Mario, just one last one from Liliana regarding CapEx for bebbia. Can you explain a little bit better the technicality on how we register for product installation?

[Mario Antonio Romero Orozco, executive]

There is no CapEx in bebbia. Well, there is, but it's only for the institutional products, the ones that go into large places such as offices and hospitals and hotels. But for the residential, it goes -- everything flows into expense.

[Carlos Rojas Mota Velasco, executive]

In the moment that it's serviced. And in terms of geographical expansion targets, I guess what we'd like to share is that there will be some resource allocation to service demand in wastewater treatment plants in Brazil. What won't be necessarily the most relevant moving forward as strategically, we are focusing on capital allocation more towards North America. That will be the main focus of capital allocation moving forward. Thank you, Liliana. And thanks, everyone, for connecting now on this occasion, via Zoom. I think it went very well in terms of logistical terms. Mariana, please, I think we're ready to now move to the final statement.

[Mariana Fernandez, executive]

Perfect. Well, thank you, everybody, for joining us and see you next quarter.

[Mario Antonio Romero Orozco, executive]

Thank you very much for your time and interest. Have a very good day.

[Mariana Fernandez, executive]

[ Danny ], could you please end the meeting. Thank you.